By Gram Slattery, Pesha Magid, Nafisa Eltahir and Timour Azhari

RIYADH/DAMASCUS (Reuters) - President Donald Trump said on Tuesday he would order the lifting of sanctions on Syria at the behest of Saudi Arabia's crown prince, a major U.S. policy shift ahead of an expected meeting with Syria's Islamist President Ahmed al-Sharaa.

Trump is set to say hello to Sharaa on Wednesday in Saudi Arabia, a White House official said, setting up an encounter between the president and the former al Qaeda commander who took power after Bashar al-Assad was toppled. Two Syrian presidential sources told Reuters that they would meet on Wednesday morning.

"I will be ordering the cessation of sanctions against Syria in order to give them a chance at greatness," Trump told an investment forum in Riyadh, at the start of a tour of Gulf Arab states. "It's their time to shine. We're taking them all off," Trump said, "Good luck Syria, show us something very special."

Trump said he had made the decision after discussions with Saudi Crown Prince Mohammed bin Salman and Turkish President Tayyip Erdogan, whose governments have both strongly urged the lifting of sanctions.

The surprise move was announced despite deep Israeli suspicion of Sharaa's administration. Israeli officials have continued describe Sharaa as a jihadist, though he severed ties with al Qaeda in 2016.

Trump said he would remove all sanctions, saying they had served an important function, but it was now time for Syria to move forward. He said steps were being taken to restore normal relations with Syria, and that U.S. Secretary of State Marco Rubio would meet his Syrian counterpart this week.

The U.S. sanctions, imposed when Assad was in power, have cut Syria off from the global financial system and deterred foreign investment and trade, hampering efforts to rebuild from the war.

Syrian Foreign Minister Asaad al-Shibani, in a statement to Reuters, said it marked a turning point for the Syrian people in their efforts to rebuild.

"We ... stand ready to foster a relationship with the United States that is rooted in mutual respect, trust and shared interests," Shibani said.

He also said Trump could get a "historic peace deal and victory for U.S. interests in Syria," without elaborating.

Under Assad, Syria remained in a state of war with neighbouring Israel, had close ties to Iran and Russia and turbulent relations with the West.

Since December, Israel's military has occupied Syrian territory near the Golan Heights, which Israel has occupied since 1967, while also carrying out regular air strikes in the country.

Syrian officials have meanwhile signaled their openness to a detente and even eventual peace with Israel.

Sharaa was for years the leader of al Qaeda's official wing in the Syrian conflict. He first joined al Qaeda in Iraq, where he spent five years in a U.S. prison. The United States removed a $10 million bounty on Sharaa's head in December.

Most sanctions laws passed by Congress, including a 2019 package of stiff sanctions on Syria, include a provision allowing a president to suspend them if he deems it to be in the U.S. national security interest.

TERRORIST DESIGNATIONS

The United Nations, which has been pushing countries to lift sanctions on Syria, welcomed the move.

"It was important for us to see relief on sanctions on Syria to help the reconstruction of Syria, to help the Syrian people recover from more than a decade of conflict, a decade of under investment," said U.N. spokesperson Stephane Dujarric.

Formerly known as Nusra Front, the Islamist Hayat Tahrir al-Sham was al Qaeda's official wing in Syria until breaking ties in 2016. HTS was officially dissolved in January.

The group has been on the U.N. Security Council al Qaeda and Islamic State sanctions list for more than a decade, subjected to a global assets freeze and arms embargo. There are no U.N. sanctions on Syria over the civil war.

It was not immediately clear if the United States would also push the Security Council to lift the sanctions on HTS.

(Reporting by Gram Slattery and Doina Chiacu; Timour Azhari in Damascus, Patricia Zengerle in Washington, Michelle Nichols in New York; Ahmed Elimam in Dubai; Writing by Andrea Shalal and Tom Perry; Editing by Nick Zieminski, Mark Potter and Alistair Bell)